Gramercy Seeking $1.3 Billion From Peru Over Land-Bond Dispute

  • U.S. hedge fund gives notice of intent to seek arbitration
  • Gramercy says Peru violating terms of U.S. free-trade accord

Gramercy Funds Management LLC said it’s owed $1.3 billion from Peru’s government for decades-old defaulted bonds.

The hedge fund filed a notice of intent to seek arbitration under the U.S.-Peru Free Trade Agreement unless it reaches an “amicable resolution,” according to an e-mailed copy of the document from the Greenwich, Connecticut-based company’s outside public relations firm. Gramercy said it began purchasing defaulted land bonds in 2006 and now holds 10,000 individual notes. It is claiming more than $1.3 billion in damages.

The dispute between Gramercy and Peru relates to bonds issued under the military dictatorship in the 1960s and 1970s as compensation to farmers whose lands were seized as part of an agrarian reform. Peru defaulted on the debt after the economy collapsed in the 1980s. Subsequent court rulings in Peru declared the country still liable for the notes, and Gramercy and the government are now at odds over the formula that should be used to calculate how much is owed. APJBA, a creditors’ association in Peru, says a 2013 court ruling ordering the government to calculate the debt using U.S. Treasury rates rather than Peruvian inflation reduces its value to just 5 cents on the dollar.

“Gramercy has at all times preferred an amicable solution for the land bonds, and continues to do so,” the notice said. The firm “remains ready to meet government representatives to explore solutions,” it said.

In an e-mailed statement, Peru said it is handling the land-bond issue “diligently” and will defend any concrete international claim “vigorously.”

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